Recent Trends in Franchise Relationship Laws

[7] For instance, China’s Civil Code and Contract Law provide that commercial transactions (which would include franchise transactions) must be conducted in good faith, see PRC Civil Code, Article 4 and PRC Contract Law, Article 6.  In addition, the right of the franchisor and the franchisee to assign the franchise agreement is regulated under China’s Contract Law, in addition to its franchise regulation, see PRC Contract Law, Chapter 5.

[8] EU’s Vertical Restraints Block Exemption Regulation is probably the most prominent example, and affects all franchised businesses operating in the EU (and EU candidate countries like Turkey).  Venezuela’s competition law also affects franchise agreements, although, given the country’s recent imposition of foreign exchange regulations that made it almost impossible to make outbound royalty payments, competition law requirements are probably the least of an international franchisor’s concerns over there. Lastly, it should be noted that some franchise laws and regulations are issued under the competition law and/or are administered by the competition authority, including, for example, Japan, South Korea, and Taiwan.

[9] Registered user filing is a common feature of trade-mark laws around the world.  Occasionally, such registration requirement would require modification to the franchise agreements.  The application of technology transfer regulations to franchise agreements has been much more problematic in certain countries (for example, the Phillipines), as these technology transfer regulations tend to afford generous protection to licensees (for example, no indemnity of the licensor by the licensee), and impose requirements that are difficult to implement in a franchising context (for example, the requirement that the licensee not be restricted from using the licensed technolgy after expiration/termination of the license agreement).

[10] To the extent a country regulates the flow of money, it mostly focuses on the authenticity of the transaction.  A few countries, however, have tried to regulate the amount of fees paid overseas.  While India’s restriction on royalty fee amount and the subsequent lift of such restriction have garnered a lot of attention, countries like Nigeria continue to impose caps on royalty fees paid overseas that have effectively stopped most foreign franchisors from entering into the country and competing with indegenious franchisors, who do not face such restrictions.

[11] For example, as Andrew Loewinger and John Pratt reported in 2008, in Fleet Mobile Tyres v. Stone & Ashwell, (2006) 103 (35) L.S.G. 32, (2006) 150 S.J.L.B. 1150, 2006 WL 2524798, the English Court of Appeal “introduced the concept of ‘derogation from grant’ which is potentially similar to introducing an obligation of ‘good faith’ into franchise agreements.  See Recent Changes and Trends in International Franchise Laws, Andrew Loewinger and John Pratt, American Bar Association 31st Forum Annual Forum on Franchising (October 15-17, 2008).

[12] Regulation of the Minister of Trade No. 31/M-DAG/PER/8/2008 art. 5(1).

[13] Fair Franchise Transactions Act, amended in part on 2007, Law No. 8630.

[14] Schedule A to this paper provides a quick reference chart summarizing the relationship issues addressed by each jurisdiction.

[15] In the United States, 21 States, the District of Columbia, Puerto Rico, and the US Virgin Islands have enacted relationship laws governing the ongoing relationship between franchisor and franchisee.  There are no federal franchise relationship laws of general application.

[16] Like the United States, Canada has no federal legislation governing the franchisor-franchisee relationship.  Only 5 of the Provinces in Canada have enacted franchise-specific legislation that, among other things, governs the franchise relationship.  They are, Alberta, Ontario, Prince Edward Island, New Brunswick, and Manitoba.  Note, however, the Manitoba legislation is not yet in force and is to come into force on a date to be fixed by proclamation.

[17] Note, both Kyrgyzstan and Mongolia have franchise legislation containing relationship laws. Unfortunately, an English translation of these particular pieces of legislation could not be obtained for the purposes of writing this paper.

[18] Schedule B to this paper provides a comprehensive map of the countries with relationship laws.

[19] The Asia-Pacific region is arguably the most active region in terms of adopting new franchise regulations and significant amendments to existing laws.  In addition, it seems that it is the only region outside of the U.S. that has “franchise offering registration” requirements (e.g., China, South Korea, Vietnam, and Malaysia).  Spain at one point had a registration requirement but this was deleted as part of the 2006 amendments.

[20] Franchises Act, R.S.A. 2000, c. F-23, Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3, Franchises Act, R.S.P.E.I. 1998, c. F-14.1, Franchises Act, S.N.B. 2007, c. F-23.5, Franchises Act, S.M. 2010, c. 13.

[21] Carvel Corporation v. Baker, 79 F. Supp. 2d 53 (D. Conn 1997) at para. 69.

[22] Compare section 3 of the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3 to section 3 of both theFranchises Act, R.S.P.E.I. 1998, c. F-14.1 and the Franchises Act, S.N.B. 2007, c. F-23.5.

[23] Law of Obligations Act.

[24] People’s Republic of China Civil Code.

[25] Regulation on the Administration of Commercial Franchises (No. 485 of 2007, China).

[26] Franchise Act 1998, Act 590.

[27] Consumer Protection Act, (Act No. 68 of 2008).

[28] Franchising Code of Conduct.

[29] Russian Civil Code, Chapter 54 (Articles 1027-1040).

[30] Civil Code of Ukraine of 16.01.2003 No. 435-IV.

[31] Belorussian Civil Code, Chapter 53 (Articles 910 – 910-11).

[32] Moldova Civil Code, Chapter XXI (Articles 1171-1178).

[33] Moldova Law on Franchising, No. 1335 dated 1 January 1997, as amended.

[34] Wisconsin Fair Dealership Law, Wis. Stat. ch. 135 et. seq.

[35] Franchise Investment Act, Haw Rev. Stat. §§ 482E-6 et seq.

[36] California Franchise Relations Act, Cal. Bus. & Prof. Code §§ 20000 et seq.

[37] Industrial Property Law.

[38] 405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478.

[39] 405341 Ontario Limited v. Midas Canada Inc., 2009 CanLII 56298 (Ont. Sup. Ct.) at para. 17.

[40] Federal Arbitration Act, 9 U.S.C. §§ 1-14.

[41] Nagrampa v. MailCoups Inc., 469 F.3d 1257 (9th Cir. 2006).

[42] Mediation Regulation – Franchises Act, N.B. Reg. 2010-93.

[43] Leahy v. McDonalds’s Restaurants of Canada Ltd., [1993] O.J. No. 2226 (Gen. Div.) (QL), Beuker v. H&R Block Canada Inc., [2001] 10 W.W.R. 274 (Sask. Q.B.).

[44] Charter of the French language, R.S.Q., c. C-11.

[45] Franchise Practices Act, N.J.S.A. 56:10-1, et seq.

[46] Agricultural Implements Act, R.S.S. 1978, c. A-10 [“SAIA”].

[47] Farm Implements Act, R.S.O. 1990, c. F 4 [“OFIA”].

[48] Farm Implements Act, R.S.A. 2000, c. F-7 [“FIA”].

[49] Farm Implement Dealership Act, S.A. 2001, c. F-7.5 [“FIDA”].

[50] For example, the World Franchise Council’s Principles of Ethics; the International Franchise Association’s Code of Ethics; the Japanese Franchise Association Code of Ethics; the Code of Ethics of the European Franchising Federation; the Franchising Council of Australia Member Standards; the Canadian Franchise Association Code of Ethics; and the Franchise Association South Africa Code of Ethics and Business Practices.

[51] Argentina, Australia , Austria , Belgium, Brazil, Canada, China, Czech Republic, Denmark, Ecuador, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Italy, Japan, Kazakhstan, Lebanon, Malaysia, Mexico, Netherlands, New Zealand, Philippines, Portugal, Russian Federation, Singapore, Slovenia, South Africa, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, and the United States.

[52] The WORLD FRANCHISE COUNCIL’s Principles of Ethics, online: World Franchise Council <http://www.worldfranchisecouncil.org/control/cpview?contentId=WFC_RULES>.

[53] Code of Ethics, online: International Franchise Association <http://www.franchise.org/industrysecondary.aspx?id=3554>.

[54] A similar objective has already been undertaken by UNIDROIT in 1998 and again in 2007, with the publication of itsGuide to International Master Franchise Arrangements.  The guide offers a comprehensive examination of master franchise arrangements, from the negotiation and drafting of the agreement to the end of the relationship and its effects.